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Nightly Business Report

News/Business. (2013) Surge in mergers; Carr Lanphier, Morningstar; possible spending cuts and tax hikes. New. (CC) (Stereo)

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PBS

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00:30:00

RATING
G

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San Francisco, CA, USA

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Comcast Cable

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Channel 19 (153 MHz)

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mpeg2video

AUDIO CODEC
ac3

PIXEL WIDTH
720

PIXEL HEIGHT
480

TOPIC FREQUENCY

Macy 6, Martha Stewart 5, Officemax 4, Boeing 4, Us 3, Stewart 3, New York 3, S&p 3, Darren Gersh 2, Brian Jones 2, J.c. Penney 2, Penney 2, Ruben Ramirez 2, Washington 2, Devon 2, Martha 2, Costco 2, Joe Davis 2, Alcoa 2, Anadarko 2,
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  PBS    Nightly Business Report    News/Business.  (2013) Surge in mergers; Carr Lanphier,  
   Morningstar; possible spending cuts and tax hikes. New. (CC)...  

    February 20, 2013
    6:30 - 7:00pm PST  

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captioning sponsored by wpbt >> this is n.b.r. >> tom: good evening i'm tom hudson. stocks fall on fresh signs that even the federal reserve isn't sure how much is enough, when it comes to boosting the economy, by buying government bonds. >> susie: i'm susie gharib. can two weaklings become strong by teaming up. that's what office depot and office max are hoping for, as they decide to merge. >> tom: and a mixed picture on housing, contractors break ground on more single family homes, but pull back on building apartments and condos. >> susie: that and more tonight on "n.b.r."! how much longer should the federal reserve continue to stimulate the economy? that question was intensely debated at the central bank's policy meeting in january
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according to the minutes released today. stocks sold off on that news, as investors worry the fed might taper off its stimulus program, sooner than expected, and before its goal of seeing a big pick up in the job market. the fed has been buying $85 billion of mortgage backed securities and treasuries every month to pump up the economy. here's what those fed minutes revealed: "many" policymakers voiced concerns about "potential costs and risks" from more bond buying. others said that the easy-money policies might encourage "excessive risk-taking" and that could have "adverse consequences for financial stability" policymakers also noted positive developments in the economy, as more businesses are optimistic about the economic outlook. nervousness about the fed's next moves pulled down stocks: the dow lost 108 points, closing below the 14,000 level. the nasdaq was down about 50, the s&p lost 19 points. >> tom: before the federal
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reserve's notes on its last meeting were released this afternoon, we saw a mixed report on the housing market. construction starts on new homes fell 8.5% in january. but that drop in the headline number was pulled down by a drop in apartment and condominium construction. the number of single family homes that began going up last month rose 0.8% to its highest level since the great recession. darren gersh digs deeper. >> reporter: in housing, one month does not a trend make. analysts shrugged off the news that housing starts fell last month, instead looking to encouraging trends on home prices, rents, and overall demand. >> there are gonna be these squiggles, blips in the market as things happen, just because they happen from month to month- - snow storms, weather, holidays, whatever, but right now we are in a recovering market. >> reporter: overall, homes sales are up more than 10% over last year. and builders are picking up the pace. they are now on track to build around 900,000 homes this year, but by the end of the year, the
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national association of realtors expects the pace to pick up to an annual rate of 1.1 million starts. that's great, but keep in mind a normal year for home construction is closer to 1.8 million. the outlook for apartments and other multi-family construction is also good, even though those starts dropped last month. rents rose 4.5% last year and researchers at zillow expect a similar increase this year. that's why investors are pouring into the market and building new apartments. >> assuming you can buy the property cheaply or build it cheaply and rent it out, then you seeing 4.5% growth in your top line numbers for what you are able to rent it out for looks attractive. >> reporter: but the outlook varies depending on where you live and how strong the job market is in your area. >> the market will be up a lot more in texas than it will be in parts of the east coast. of course, on the west coast we've got a bit of a housing shortage. inventory is tightest there.
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so i think there we will continue to see starts and more starts in the future, simply because we've got tight inventory. >> reporter: so while far from normal, economists say housing is once again strong enough to play its traditional supporting role for the economy following a tough recession. darren gersh, "n.b.r.," washington. >> susie: joe davis joins us now, he's chief economist at vanguard, the giant mutual fund company. >> susie: joe, nice to have you with us on this important day. let me start by asking you, do you think the fed is taking on too much risk? >> i think there is an argument that can be made. we've had a concern for more than a year that there are both costs as well as benefits with respect to very aggressive monetary policy. and just some of the behavior we've seen in the financial markets. i know the report talked about excessive risk-taking. so i've had a concern that those costs associated with monetary policy may
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not have been given the sort of credence they should have been. so a positive development, in my mind, to today's minutes it was that federal reserve policy-makers were more aggressively talking about both the pros and cons wreaptwith respect to aggressive monetary policy. >> susie: one thing we've been hearing repeatedly from the federal reserve is they're not going to make any change in this policy, raising interest rates, until the economy is stronger. most notably that the job market picks up, and the unemployment rate gets to the 6.5% level. so given the numbers in the housing, and given we're seeing gasoline prices are going up, is the economy strong enough to even begin talking about raising interest rates? >> i don't know about that, but i think it is important to talk about the beginning of the end in terms of how aggressively the federal reserve has purchased certain securities, particularly fixed income securities. i would make the case that the economy is marketly
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stronger today than it was just a year or two ago. you mentioned housing. the business sector, consumers are less debt-burdened than two or three years ago. by those measures, i'm hard-pressed to find why even six months from now the federal reserve would have the peddl pedal to the floor of the car as they have for the past two or three years. >> susie: what is going to be the time table on this? we saw with the gold prices that the commodities are already responding. but when you did think that the fed realistically will be acting on an exit strategy? >> i think the exit strategy will be over the next six to 12 months in terms of more vocal conversations and guidance with respect to the amount of the frequency of their purchases. i think a later stage is then contemplation of raising interest rates, and the funds rate, which is effectively at zero. i think there they willmuch more
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labor market front in terms of job progress. i think all of the other conditions are in place to see a modest acceleration in job growth, but it is going to take some time to bring that unemployment down, if i'm correct, that some americans return to the labor force. >> susie: one concern for a lot of people as investors is what do i do now? a lot of people started putting money in the market. i know you're an economist, but you also are at vanguard with all of the mutual funds. what is the view at vanguard as to what investors should be doing, given thegoing on in washington. >> i think what many investors actually are doing is to look through some of these headlines, and to embrace that long-term orientation, look at the balance and risks and what you're trying to achieve with your portfolio. and if that ascertation of this plan is the same today as it was two, five, 10 years ago, it is critical to stick with
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that plan. i think even going back three years ago, our message to clients was, listen, the economic environment may be challenging, but you can still have decent portfolio returns. and since that time, we've had decent portfolio returns, both on the equity market and bond portfolios. so continuing to reaffirm that message, and for investors to stay invested in markets. because we're going to have ups and downs as the economy muddles through some of this. >> susie: a lot more to talk about, and we'll continue this conversation, but we have to wrap it up for now. thanks so much, joe davis, chief economist at vanguard. >> thank you, susie. >> reporter: still ahead, martha's in the middle, of a courtroom showdown between two major retailers, what's at stake for the stores, and her brand. >> tom: there is progress to report tonight from boeing on the battery issue plaguing the its 787 dreamliner. still the planes remain grounded. the aircraft maker may have found a fix for the plane's battery problems, by making bigger gaps between battery cells, that's according to reuters. boeing's head of commercial
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engines is expected to meet with the head of the federal aviation administration friday to present a 10 point plan to prevent battery fires or meltdowns. neither boeing nor the f.a.a. are commenting. boeing shares rose slightly to close at $74.78 per share. >> susie: two big and struggling office supply companies are teaming up. office depot is merging with office max in a stock deal valued at more than $1 billion. a union of the two companies has been rumored for years, given trouble in the office supply sector.
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but investors didn't buy in: shares of office depot tumbled 16%, office max fell 7%, and even rival staples was down on the news: off 7%. erika miller reports. >> reporter: if you want a good read on the economy, it helps to watch demand for office supplies. when the economy is booming, businesses need more pens, paper, and printers. but growth has been weak since the great recession, and that has meant less demand for office products. office depot and office max have been struggling behind industry leader, staples. >> staples, their retail store is about 25-30% more productive than comparable locations. and they also have a much more attractive business customer mix. they have the mid-size customers, compared to office depot and office max which are dependent on the lower margin large customers. >> reporter: office depot and office max hope by merging, they will be able to save big bucks by closing stores, combining
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operations, cutting advertising costs, and negotiating better prices from suppliers. but office supply stores are also facing stiff competition from wal-mart, costco, and amazon. those retailers have lower cost structures which often means lower prices. what's worse, the office supply stores are losing their most lucrative customers: >> your highest margin customers are your small business customers. or someone who just wants to buy something for the home office. and what we've seen is that amazon and costco are targeting these higher margin small business customers. >> reporter: those struggles are reflected in the office depot and office max stock prices. shares of both companies have plunged more than 70% from their highs back in 2006 and 2007, respectively. staples and office depot tried to merge in 1997, but the deal was blocked by regulators because of fear it would lead to higher prices. but most industry experts give this deal a high probability of
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going through. >> longer-term, this deal is expected to be good for office depot and office max, but also for their biggest rival. if office depot and office max close stores, staples will have less competition. erika miller, "n.b.r.," new york. >> tom: combined the two companies have about two thousand retail stores. and as erika mentioned, some of those stores are expected to close, leaving vacant millions of square feet of commercial real estate. brian jones is a portfolio manager for the neuberger berman real estate fund. >> tom: brian, what kind of shape is retail reestate in as it faces what could be a big consolidation>> well, thank your having me tonight. i think retail real estate is in a very good situation right now. what we've seen over the past two years have been
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improving occupancies, and in many of the better markets we're beginning to see rental rate growth. this is largely driven by the fact there is very little new construction of retail centers going on in the united states currently. and,w√°looking to grow have to find space in the existing centers in order to fund and continue their growth efforts. >> tom: let's assume that office depot and officemax are successful in combining their resources. does this square footage, that presumably would become vacant in the years ahead, actually help relieve some of the pressure that you're seeing today? >> well, what we would say is that these two tenants are still relatively small when compared do the total pie of retail real estate. when we looked at the reits in our coverage universe, we found that combined office depot and
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officemax were in every case at less than 2% of the rental revenues for the reits in our coverage universe. so together, they're relatively small tenants for the overall retail reit universe, and the retail space in general. what it will provide is the opportunity for some of the retailers that have growth plans to actually find centers to grow in. and so we think that over time, a lot of the stores that are closed will be released to stronger tenants. and in many cases, that will end up strengthening the underlying center, where the office depot or the officemax have gone out. >> tom: you mentioned your coverage universe, and you did bring along one kind of outdoor shopping real estate investment trust that you like, federal reality investment trust, frt.
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what make this stand out in a crowded market? >> one thing i would like to point out is that this highlights one of the benefits of investing in reits, as opposed to a single piece of real estate. most of the reits own dozens, if not hundreds, of retail centers. so they're generally diversified by geography, by tenant mix, and by-product type. so federal realty is an excellent example of a retail reit in areas that have high population densities and above average incomes. and these are the locations where many of the growing retailers, such as t.j. max and marshal's and nordstrom rack, five guys, burgers,
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panera bread -- the retailers that are looking to grow are focused on these higher income, higher density markets. and this is where federal is positioned. and we think that they are positioned to do well in the future. >> tom: okay. >> office depot and officemax are not within their top 25 tenants. >> tom: gotcha. and that's something you like for f.r.t. do you have position in the fund in that stock? >> yes, we do own federal reality in our mutual funds newberger fund. >> tom: and you help manage that. it is brian jones with us, from newberger, berman. >> thank you.
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>> susie: it's macy's versus j.c. penney in a high stakes fight over bed linens, cocktail napkins and kitchen tools. at issue: who will be allowed to carry product's with martha stewart's name on them. macy's has been the selling stewart's merchandise since 2007. it claims it owns the exclusive rights to carry her home furnishings. but rival j.c. penney argues it has the right to sell other stewart-branded products that macy's doesn't carry. ruben ramirez reports. >> reporter: martha's in the middle, as two of the nation's best-known department stores fight in new york state supreme court over just who can carry the domestic diva's home products. >> two different companies are looking at an agreement and interpreting it two different ways. macys is interpreting it very broadly and pennys is interpreting it very narrowly.
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>> reporter: there's no denying the appeal of carrying martha stewart's brand. macy's says it has billions of dollars on the line. >> for macys, having a differentiated exclusive brand is critical to their competitive strategy and they've invested a lot of time and effort in building up the martha stewart brand giving her a lot of exposure in their stores and its a linchpin of their home strategy. for, j.c.p., martha is a key part of its "store within a store" turnaround plan. >> she can appeal to the kind of customer that penneys has and the kind of customer that they want to get which i think is a little more upscale than what they have right now so its a dual win for penneys in that regard. >> reporter: penney's is counting on a clause in stewart's original contract with macy's, which allowed her to open stand-alone stores, arguing the clause never said that stand alone shop could not be inside a bigger store. if j.c.p. is successful, appel says it opens up another retail channel for stewart's company.
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>> for martha stewart its really about the merchandising end of her business is the only part of her business right now that is growing and is profitable and for her to be able to increase her distribution is critical to her business strategy. >> reporter: the trial got underway in a manhattan federal courtroom today, and now that its begun, attorneys say a settlement could be coming. >> there is something about a trial that forces the parties to look at a case a little differently than they do when they're not at trial and it may well be that they reach a compromise at that point. >> reporter: martha stewart and the c.e.o.s of macy's and jc penney are expected to take the stand. the trial is slated to last about two-and-a-half weeks. unlike other court cases which are decided by a jury the outcome of this one will be decide by one judge. ruben ramirez, "n.b.r.," new york. >> tom: what started out as some mild selling picked up this afternoon with some federal reserve officials worrying about how long to keep buying bonds to help the economy. that news came just after two o'clock eastern time, which is
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when the s&p 500 selling gathered momentum. the index finished down by 1.2%. it was at a five and a half year high yesterday. trading volume grew. 815 million shares on the big board. two billion traded on the nasdaq. all 10 of the major stock sectors were lower. the materials sector saw the biggest loss, down 2.8%. followed by the selling in the energy and consumer discretionary sectors. two gold and copper miners saw the heaviest selling among material stocks. gold and copper metal prices both were down sharply. freeport mcmoran was down 6%. this is a two-and-a-half month low. newmont mining fell 5.5%, both stocks saw heavy volume. this is a new 52 week low. aluminum maker alcoa was hit too, falling 3.3%. alcoa has seen aluminum prices recently stabilize. in addition to the drop in new home construction last month, we heard from home builder toll brothers. it earned $0.03 per share in the
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last quarter. while that's an improvement from the loss a year ago, it was considerably less than the $0.10 per share in earnings forecast by wall street analysts. while toll saw more home sales close, it also saw its average selling price drop. and so did the price of its stock. shares fell 9%. the stock has lost 10% in less than a week, after staging a big rally over the past year. other homebuilder stocks got hit. pulte group fell 6.8%, d.r. horton was off 5.8%. foxconn is not a household name in the u.s., but if you use an apple iphone, hewlett packard computer or any of dozens of other electronic devices, foxconn is the taiwanese company that assembles it. today foxconn said it has frozen the hiring of assembly-line workers in china after the lunar holiday there. that fed speculation about demand from apple and h.p. apple shares fell 2.2% since the plant freezing hiring makes the iphone five, but foxconn said its decision to stop hiring was not related to making the iphone. an analyst at investment bank u.b.s. thinks it could be because of less demand for hewlett packard desktop
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computers. h.p.q. shares were down by 1.1%. hewlett-packard reports its latest quarterly earnings tomorrow after the closing bell. independent energy companies devon and anadarko updated their shareholders on their strategies, but both were greeted with selling. anadarko petroleum was down 4.5%. it's energy production outlook was less than expected while it's forecast for capital spending was more than anticipated. it expects to be among the most active deepwater drillers this year. devon energy fell 6.6% after saying it may try again to spin off its pipeline and processing businesses. it tried that six years ago but stopped after the economy weakened. four of the five most actively traded exchange traded products were lower. the s&p 500 volatility note jumped 8.6%. it usually moves in the opposite direction of the broad market. and that's tonight's "market focus."
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>> susie: whether it's facebook, instagram, or pinterest, there always seems to be a hot start- up in the tech pipeline. but as tonight's commentator explains the next big tech company might not be as "original" as you think. he's harry lin, executive-in- residence at idea-lab, a technology incubator in pasadena, california. >> an irony in the world of technology startups is that we tend to copy each other a lot. i call this "ironic" because the image of tech startups is that they're all about innovation and risk-taking. yet, venture-capital investors and tech entrepreneurs all know
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that for every instagram that gets launched, there are at least 10 other startups that pretty much are instagram. just with a different name. did you know that there are at least three well-funded startups; i'm talking more than $10 million of investment capital, that match dog owners with dog sitters? the number of me-too startups goes crazy when you look at other types of products and services: project management software, ordering food online, music streaming, cloud file- storage. and i can't even keep track of all the fashion-and-clothing sale sites duking it out on the internet, there are scores of them! even pinterest has at least half-a-dozen straight-up clones. so why is an industry that's supposedly about innovation and disruption so quick to copy itself? investors may call their capital "venture", but they're looking for safe bets, so when something seems to be working, why not invest in the same thing? we also know that in some niches, there's space for several winners, so maybe investing in the me-too will
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work out. the entrepreneurial myth is that we invent new stuff, when, much of the time, we engineer twists or slants on old stuff. it's really, really hard to come up with a brand-new idea that's never been tried. so this copy-catting will continue and i'll continue to call it ironic. i'm harry lin. >> tom: whether copy cats or not, all entrepreneurs face difficulty at one time or another staying motivated. our "nbr-u" partners at vanderbilt university have eight steps for staying motivated to reach long-term goals, just head to: www.nbr.com and look for the "nbr-u" tab. >> susie: tomorrow on "n.b.r." ford is hiring: it's adding jobs at its cleveland plant that builds the eco-boost engines. but its not alone, we look at job creation in the u.s. auto industry. >> tom: finally, "neither snow,
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>> tom: that's "nightly business report" for wednesday, february 20. have a great evening everyone, and you too susie. >> susie: goodnight tom, thanks for watching everyone, we'll see you online at: www.nbr.com and back here tomorrow night. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >> join us anytime at nbr.com. there, you'll find full episodes of the program, complete show transcripts and all the market stats. also follows us on our facebook page at bizrpt. and on twitter @bizrpt.
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